e-Invoice Exemptions in Malaysia: Who Qualifies, Rules & Process

With the launch of the second phase of e-invoicing in Malaysia since January 1, 2025, businesses with an annual turnover between RM 25 million and RM 100 million have transitioned to comply with e-invoicing requirements. However, it’s important to note that not all businesses or transactions fall under the e-invoicing mandate.

The Inland Revenue Board of Malaysia (IRBM) has specified exemptions to accommodate certain entities and transaction types. This guide outlines the latest exemption criteria, based on the LHDNM e-Invoice General FAQs (January 2025 Update) and the IRBM e-Invoice Specific Guideline (Version 4.0).

Summary of all e-Invoice Exemptions in Malaysia

Here is a summary table of all e-Invoicing exemptions in Malaysia based on the latest guidelines:

Who is required to issue e-Invoice in Malaysia?

Before getting into the exemptions, here are the persons and transactions subject to e-invoicing requirements.

Applicable Entities: E-invoice is mandatory for all taxpayers involved in commercial activities in Malaysia, including associations, bodies of persons, companies, and so on.

Transaction Types Covered

• Suppliers must issue e-Invoices for:
  • All B2B and B2G transactions.
  • B2C transactions upon customer demand.
• All types of transactions, including invoices, debit notes, credit notes, and refunds.

Self-Generation by Buyer: If the supplier is a foreign entity or not subject to e-Invoicing rules in Malaysia, the buyer must self-generate the e-Invoice.

Implementation Timeline

• Companies with annual turnover exceeding RM100 million: Mandatory from 1 August 2024.
• Companies with turnover between RM25 million and RM100 million: Mandatory from 1 January 2025.
• All other taxpayers: Mandatory from 1 July 2025.

Entities and Persons Exempt from Issuing e-Invoice

The following entities and individuals are exempt from issuing e-Invoices, including self-billed e-Invoices:

• Ruler and Ruling Chief (as per Section 76 of the Income Tax Act 1967).
• Former Ruler and Ruling Chief (except former Governor or Yang di-Pertua Negara of a State).
• Royal Consorts (Raja Perempuan, Sultanah, Tengku Ampuan, etc.).
• Government agencies, State authorities, Local authorities.
• Statutory bodies and statutory authorities.
• Facilities operated by the above authorities (hospitals, clinics, multipurpose halls, etc.).
• Foreign diplomatic and consular offices.

Types of Income and Transactions Exempt from e-Invoicing

Certain types of income and transactions do not require an e-Invoice, including:

• Employment income (salary, allowances, and benefits).
• Alimony payments.
• Pensions and government allowances.
• Dividend distributions in specific circumstances.
• Scholarships and education-related payments.
• Zakat contributions.

Exemptions from e-Invoicing for Specific Transactions

The latest e-Invoicing guidelines provide clear exemptions for specific types of transactions where e-Invoices are not required or have special conditions. Below is a detailed breakdown of the exemptions:

Director Fees

The requirement for e-Invoice issuance depends on the nature of the contractual agreement with the company:

• Contract of Service (Employment Income):  If a director is employed under a service contract, their income is classified as employment income. No e-Invoice for salaries, allowances, or any payments under this category is required.
• Contract for Service (Independent Work): If a director is engaged under a contract for service, meaning they provide services independently (like a consultant), the fees are not considered employment income. An e-Invoice must be issued for any payments received under this arrangement.

Deposits

The e-Invoice requirement depends on whether the deposit is refundable or non-refundable:

• Refundable Deposits: No e-invoice is required at the time of payment. If the deposit is later forfeited, an e-invoice must be issued at that point.
• Non-Refundable Deposits: e-Invoice issuance is required at the time of payment.

Rental Income

The e-invoice requirement depends on whether the landlord is conducting a business:

• Landlord Conducting a Business: Must issue an e-invoice to the tenant.
• Landlord NOT Conducting a Business: If the tenant is a business entity, the tenant must issue a self-billed e-invoice for the rental payment.

Inter-Department / Inter-Division Transactions

No e-invoice is required for transactions within the same company, as these do not involve independent taxable entities. Businesses may choose to issue e-invoices for internal records, but it is not mandatory.

Gift Cards, Vouchers, and Loyalty Points

The treatment of e-invoices depends on the nature of the voucher:

• Free or Refundable Vouchers: No e-invoice is required at the time of issuance. If the voucher is redeemed, an e-invoice must be issued at that point.
• Non-Refundable Vouchers: e-Invoice is required at the time of sale.
• Expired Vouchers: No e-Invoice required for expired vouchers unless they were refundable.

Refund of Payments

No e-invoice is required for the following payment returns:

• Wrong Payments: If a customer or supplier accidentally transfers funds and the money is refunded, an e-invoice is not needed.
• Overpayments: If a buyer overpays an invoice and the excess amount is refunded, no e-invoice is required.
• Return of Security Deposits: If a refundable deposit is returned to the payer, no e-Invoice is required.

Cross-Border Transactions

The e-invoicing requirements for international transactions depend on whether the entity is buying or selling:

• Foreign Income: No e-invoice is required for income received from overseas entities.
• Imports: Malaysian buyers must issue self-billed e-invoices when purchasing from foreign suppliers.
• Exports: Malaysian sellers must issue e-Invoices for sales to foreign buyers.

Special Exemptions During the Interim Relaxation Period

To facilitate a smooth transition, the IRBM has granted a 6-month relaxation period for businesses adopting e-Invoices for the first time:

During this period:

• Existing invoices may still be used instead of e-Invoices.
• No penalties for non-compliance will be imposed.
• Taxpayers can voluntarily implement e-Invoicing before the deadline.

Reasons for exemption from e-invoice in Malaysia

The exemptions from implementing e-Invoice in Malaysia are provided for several reasons:

• Sovereign Status: Entities such as rulers, ruling chiefs, and their consorts are exempted due to their sovereign status, which involves different legal and administrative frameworks.
• Government Regulations: Government bodies, state authorities, and local authorities are exempted as their financial transactions are governed by specific regulations and accounting practices separate from commercial entities.
• Different Legislative Mandates: Statutory bodies operate under their own legislative mandates and accounting procedures, which does not align with commercial e-invoicing requirements.
• International Agreements: Consular offices and personnel are often subject to diplomatic protocols and international agreements that dictate their financial processes, warranting exemption from commercial invoicing regulations.
• Operational Efficiency: Exempting certain entities and transactions streamlines the e-invoicing implementation process, focusing resources on the most necessary and relevant areas.
• Avoidance of Multiple Reporting: Certain types of income, such as employment income and distributions of dividends, are already subject to other forms of documentation and reporting.

Scholarship

Impact of e-invoice exemptions in Malaysia

There are both positive and negative impact of e-invoice exemptions in Malaysia. Here are some major impacts of exemptions.

1. Exempt entities benefit from reduced administrative burden and cost savings.
2. Enforcement of e-invoicing regulations becomes more challenging with exemptions in place.
3. Exemptions lead to a lack of uniformity in the documentation and SST returns.
4. Exemptions reduce the workload on regulatory officials tasked with overseeing e-invoicing compliance.

Conclusion

Malaysia’s e-invoicing exemptions reflect a balanced approach, ensuring that critical businesses comply while providing necessary relief to smaller businesses, government bodies, and non-commercial transactions. These exemptions ensure that e-Invoicing targets the right business activities without imposing unnecessary administrative burdens on non-commercial entities and exempt transactions. 

Furthermore, embracing efficient invoicing solutions like those offered by ClearTax can significantly smoothen this transition towards e-invoicing.

ClearTax with its extensive experience across various nations, provides simplified, faster, and more efficient e-invoicing solutions, making the e-invoicing process compliant and highly efficient.